Sovereign Wealth Funds Likely Will be Bolder in 2023

Posted on 01/16/2023

Despite media reports that assets of sovereign wealth funds shrunk in 2022, based on SWFI data projections, oil-based wealth funds are likely to increase transaction volume in 2023. The 2022 pull back in SWF value is attributed to the drop in value of fixed income and public equity holdings. It is no secret that private market asset values are smoothed in a valuation snapshot. SWFI projects that relatively higher fossil fuel energy prices are contributing to the growth of sovereign wealth fund money flows. Many of these commodity-based sovereign investors are able to recycle capital and become contrarian long-term investors.

Sovereign funds remain concerned about inflation and the actions of central bankers trying to contain it. These policies have altered some tactics by sovereign funds. For example, Singapore’s GIC Private Limited is reassessing its hedge fund manager lineups, and refocusing some on strategies that will perform well in an environment of rate increases and more volatility. GIC also has made tactical moves in real estate, as open-end real estate funds run by firms like Blackstone, MetLife, and UBS face major fund redemption requests.

Direct investors like the Qatar Investment Authority (QIA) are looking at areas of growth and promise, including technology investments and sports team investing. For example, the QIA was in a consortium of investors to take Twitter Inc. private and the wealth funds publicly backs Elon Musk in turning around the company. QIA is also seeking to get more exposure to venture capital, even as other traditional limited partners are licking wounds from 2022. 2022 was a record year for venture capital raising and SWFs will likely continue to play a larger role in that ecosystem. Startups missing funding rounds in 2023 could spell life or death for new companies that have failed to lower burn rates. Venture capitalists continue to turn to large limited partners like pensions and sovereign wealth funds for money as high-net-worth individuals are beginning to dial back exposure.

QIA as a contrarian investor plans to reposition their portfolio to investment in assets that are poised for corrections in the long-term.

From a regional perspective, sovereign wealth funds are working closely together. Recently, the Oman Investment Authority (OIA) disclosed the Saudi Arabia’s Public Investment Fund (PIF) has allocated US$ 5 billion for investment in the Sultanate of Oman. PIF is looking at building a presence in the country to embark on investments that can help achieve their goals.

All in all, the larger sovereign funds may end up increasing direct deals in 2023.

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